U.K. Economy: Goldilocks and the Three Charts

The British economy is in a sweet spot. Growth has been rising while inflation’s been coming down. And there’s no sign either’s about to change.

Growth is building on the back of a housing boom, kick-started by flows of foreign capital into the London market and more recently sustained by an uptick in credit supply. The first quarter GDP numbers released on Tuesday came in modestly below expectations, though they tend to be subject to large revisions.

At the same time, a strong pound and–until recently at least–falling commodity prices have tamed inflation pressures after years of exceeding the Bank of England’s 2% target.

The result is that the Bank of England is content to keep its key policy rate on an ultra-accommodative setting for quiet a while yet. The market doesn’t anticipate the first rate hike until the end of the first quarter 2015.

Of course everyone knows the story of Goldilocks. She meets the three bears.
The U.S. economy’s performance post the tech and telecom bust of 2001 was also referred to as a Goldilocks recovery.

The result was extreme market excesses and an even bigger financial crisis.

This time around, the Bank of England faces perhaps the biggest housing bubble London’s ever seen. And the longer rates stay low, the bigger it’s likely to grow.

Goldilocks founds things just right for a while. But in the end she was left running scared.